Pilgrim’s Pride (NASDAQ: PPC) has had a good run in the stock market. The stock is up a whopping 11% over the past three months. However, we wonder if the company’s inconsistent financials would have a negative impact on current price momentum. In particular, we decided to investigate the Pilgrim’s Pride ROE in this article.
Return on equity, or ROE, is a key figure used to assess how efficiently a company’s management is using the company’s capital. In short, the ROE shows the profit each dollar makes on its shareholder investment.
Check out our latest analysis for Pilgrim’s Pride
How is the ROE calculated?
The ROE can be calculated using the following formula:
Return on Equity = Net Income (from continuing operations) ÷ Equity
Based on the formula above, the ROE for Pilgrim’s Pride is:
4.7% = $ 128 million ÷ $ 2.7 billion (based on the last twelve months through March 2021).
The “return” is the amount earned after tax over the past twelve months. This means that for every $ 1 worth of equity, the company made a profit of $ 0.05.
What does ROE have to do with earnings growth?
So far we have learned that ROE measures how efficiently a company generates its profits. We now need to evaluate how much profit the company is reinvesting or “keeping” for future growth to get an idea of the company’s growth potential. In general, all other things being equal, companies with high ROE and profit sharing will have a higher growth rate than companies that do not share these characteristics.
Pilgrim Pride Earnings Growth and ROE of 4.7%
At first glance, the ROE of Pilgrim’s Pride doesn’t seem like much to tell. We then compared the company’s ROE to the broader industry and were disappointed that the ROE was below the industry average of 11%. Therefore, it may not be wrong to say that the 19% five-year decline in net income that Pilgrim’s Pride saw was likely due to the fact that the ROE was lower. We believe there could be other aspects that negatively affect the company’s earnings outlook. For example – low profit retention or poor capital allocation.
That being said, we benchmarked Pilgrim’s Pride’s performance against the industry and were concerned to find that while the company has shrunk its profits, the industry has increased profits by 1.7% over the same period.
NasdaqGS: Past PPC Earnings Growth May 21, 2021
The foundation of a company’s value creation is largely tied to profit growth. Next, investors need to determine whether the expected or lack of earnings growth is already built into the stock price. That way, they can determine if the future of the stock is promising or threatening. If you’re wondering about Pilgrim’s Pride rating, check out this measure of value for money versus the industry.
Is the pilgrim’s pride effectively using his retained earnings?
Since Pilgrim’s Pride pays no dividends, we conclude that it keeps all of its profits, which is pretty confusing considering there is no profit growth to show for it. So there could be some other explanations in this regard. For example, the company’s business may deteriorate.
Overall, we’re a bit ambivalent about the performance of Pilgrim’s Pride. While the company has a high reinvestment rate, the low ROE means that all of those reinvestments will be of no use to its investors and also have a negative impact on earnings growth. With that in mind, we’ve examined the latest analyst predictions and found that while the company has shrunk its earnings in the past, analysts believe earnings will grow in the future. Are these analyst expectations based on broad industry expectations or company fundamentals? Click here to go to our analyst’s forecast page for the company.
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